I would be very cautious about chasing the market right here. Remember how things got parabolic last January due to euphoria and then crashed from the volatility shorts having to sell winners to cover all their bad bets? Not saying that specifically will reoccur but it pays to be nimble when there seems to be a bit of fear of missing out type of buying as well as the market trying to go ahead a price in a trade deal.

Charting wise, the market just made a "V" and those previous support levels here in the mid 2600s are now resistance points. The market tends to be relative so while we were severely oversold in December, we are now techinically overbought. Said more simply, I tend to subscribe to the thought that a "V" is actually just a "W" that hasn't played out yet.

There is also lot of money tied up in poor buying levels back in November and December that present the potential for pent up catch up trade and/or "finally able to breakeven and escape" selling pressure the higher we go here.

I think at some point, likely once 2019's earnings slow down, guidance/overall growth trajectory is digested, we will retest lower levels that are better suited for buying. I don't know that we go all the way back to 2350 unless guidance or the fed warrant that level of selling again. I'd like to see things dip down to the mid 2400s for buying purposes and the bounce back from there to see a higher low support level.

I would be very cautious about chasing the market right here. Remember how things got parabolic last January due to euphoria and then crashed from the volatility shorts having to sell winners to cover all their bad bets? Not saying that specifically will reoccur but it pays to be nimble when there seems to be a bit of fear of missing out type of buying as well as the market trying to go ahead a price in a trade deal.

Charting wise, the market just made a "V" and those previous support levels here in the mid 2600s are now resistance points. The market tends to be relative so while we were severely oversold in December, we are now techinically overbought. Said more simply, I tend to subscribe to the thought that a "V" is actually just a "W" that hasn't played out yet.

There is also lot of money tied up in poor buying levels back in November and December that present the potential for pent up catch up trade and/or "finally able to breakeven and escape" selling pressure the higher we go here.

I think at some point, likely once 2019's earnings slow down, guidance/overall growth trajectory is digested, we will retest lower levels that are better suited for buying. I don't know that we go all the way back to 2350 unless guidance or the fed warrant that level of selling again. I'd like to see things dip down to the mid 2400s for buying purposes and the bounce back from there to see a higher low support level.

Boarden, Hussman uses "profit-margin adjusted cape" to normalize earnings in his valuation calculations. What are your thoughts on his methodology, and is this any different than Shiller's?

This is a really good question. I'm going to try to provide my take of the two using a graph from my day job. As a preface, I subscribe to the thought that when executed properly, math doesn't lie yet it's honesty tends to be very relative.

The pic I've attached is a simple area graph of historical weekly sales units over nearly a three year period. Also overlayed are 3 lines that offer a 3 week moving average, an exponential smoothing, and a triple exponential smoothing model of those unit sales. The 3 week moving average offers the smoothest line. The exponential smoothing line is a little more rigid as it "reacts" more strongly as it "reads and smooths" more recent sales unit data moving left to right. Lastly, the triple exponential smoothing line is the most rigid as it "reads and smooths" the sales unit data in terms of 1) moving average, 2) trend (aka week to week movement relative to qty), and 3) seasonality (aka week to week movement relative to time). Which line should we subscribe to for projecting future sales? I think it depends on how much forecast error we can live with.

I see Shiller's CAPE (aka Cyclically Adjusted PE or PE10) and Hussman's profit-margin adjusted cape similarly. Neither lie yet their honesty is relative. Shiller's CAPE uses a simple 10 year moving average of earnings adjusted for inflation whereas Hussman subscribes to the thought that evaluation over the long term should be based on long term cash flows and short term margin volatility based on the business cycle should be smoothed. There is nothing wrong with either long term evaluation method. To me, it's just a matter of how into the weeds one wants to get.

Much more succinctly, when I have a glass of wine over dinner with the gf, we each enjoy it in a very different way. I enjoy it simplistically for it's intoxicant value and beverage supplement to the meal whereas she may go deep into the wine's slightly pink rim variation, aromas of pistachio, hay, and tea, and taste of honeysuckle, slate, and slightly oaky finish. Neither lie, the honesty is relative, and the complexity is there should you want to go find it.

This is a really good question. I'm going to try to provide my take of the two using a graph from my day job. As a preface, I subscribe to the thought that when executed properly, math doesn't lie yet it's honesty tends to be very relative.

The pic I've attached is a simple area graph of historical weekly sales units over nearly a three year period. Also overlayed are 3 lines that offer a 3 week moving average, an exponential smoothing, and a triple exponential smoothing model of those unit sales. The 3 week moving average offers the smoothest line. The exponential smoothing line is a little more rigid as it "reacts" more strongly as it "reads and smooths" more recent sales unit data moving left to right. Lastly, the triple exponential smoothing line is the most rigid as it "reads and smooths" the sales unit data in terms of 1) moving average, 2) trend (aka week to week movement relative to qty), and 3) seasonality (aka week to week movement relative to time). Which line should we subscribe to for projecting future sales? I think it depends on how much forecast error we can live with.

I see Shiller's CAPE (aka Cyclically Adjusted PE or PE10) and Hussman's profit-margin adjusted cape similarly. Neither lie yet their honesty is relative. Shiller's CAPE uses a simple 10 year moving average of earnings adjusted for inflation whereas Hussman subscribes to the thought that evaluation over the long term should be based on long term cash flows and short term margin volatility based on the business cycle should be smoothed. There is nothing wrong with either long term evaluation method. To me, it's just a matter of how into the weeds one wants to get.

Much more succinctly, when I have a glass of wine over dinner with the gf, we each enjoy it in a very different way. I enjoy it simplistically for it's intoxicant value and beverage supplement to the meal whereas she may go deep into the wine's slightly pink rim variation, aromas of pistachio, hay, and tea, and taste of honeysuckle, slate, and slightly oaky finish. Neither lie, the honesty is relative, and the complexity is there should you want to go find it.

Thanks for that. I have recently noticed that Hussman is portraying a significantly different market than Shiller. Shiller is showing markets as more expensive than depression era, yet cheaper than 99. Hussman is showing markets as high, or higher, than both. Just trying to get informed on the difference.

Thanks for that. I have recently noticed that Hussman is portraying a significantly different market than Shiller. Shiller is showing markets as more expensive than depression era, yet cheaper than 99. Hussman is showing markets as high, or higher, than both. Just trying to get informed on the difference.

Appreciate the answer.

I smell what you're stepping in. One thing fun about trying to be informed with the market is sifting through all the opinions from media pundits, hedge fund managers, traders selling their picks and secrets to the market, other Wall Street pundit that wants to be the next Larry Williams or Marc Chaikin via a new algorithm, etc.

Shiller's methodology tends to lean bearish because it does not consider things such as changes in earnings reporting standards. What I have found with Shiller's methodology is over the long run, P/Es average out around 15.25. When the business cycle lends to higher earnings growth, P/Es expand. As earnings growth decelerates (as we see now), P/Es contract back to the average with overshooting expected as economic outlook becomes more dire. Shiller's methodology can also sway if for example, a particular stage within the business cycle is prolonged within the 10 year average capture.

Hussman's methodology tends to lean towards higher valuations most of the time because (using my graph as an example) it doesn't react quite as sharply to the peaks and valleys.

When given all the different ways of calculating valuations, I tend to lean more towards the simplest approach. Long run, that 15.25ish average stays in the back of my mind as par. I then tend to look at the trailing 12 month P/E for some context, but then zero in on the forward earnings growth/decline % projections for understanding the projected forward P/E.

I believe once everything is settled, projected earnings growth for the S&P in 2019 will be around 4% vs YAGO or around 167.85. Obviously, decelerating growth is expected. 15.25 times that puts the S&P par around 2560. A 14 multiple would tend to be very oversold or equate to 2350, which the S&P bounced off, sparking the most recent rally. Once we starting heading north of a 16 multiple, or around 2685 on the S&P, we start getting relatively overbought. The S&P sold off from that neighborhood last week.

Assuming earnings projections don't deviate from that 4%, retesting the all time highs on the S&P would equate to paying 17.5 times this year's earnings. Pretty high multiple given the current sentiment so one would think we'd need higher earnings projections to get that kind of multiple expansion. Conversely, if earnings projections come down to flat, or around 161.25, the new par based 15.25 multiple on the S&P equals 2460. Future year's earnings growth/decline %s can be used similarly to understand the potential longer run trajectory but under the context of the further out you try to project the more error there tends to be.

I could do the same exercise using the Hussman methodology and likely arrive at similar S&P values correlating to the Hussman based multiple.

Maybe we'll hit it tomorrow.........I'm back even from October, hopefully we don't rollover and die.

Powell’s comments, specifically reiterating patience plus the removal of previous 2 targeted hikes really kicked the buying in this afternoon. Guidance and earnings have been meh at best but some the preamnounced down stocks are getting applauded now for otherwise near inline results. Others like MSFT, INTC, PYPL, etc are/will be punished for missing estimates that were probably a bit lazy and too high.

At some point, those failed buy the dippers from the fall will look to get out even to ahead. YoY earnings comps will be tough until Q4 so multiple expansion, even with a trade deal, should be muted. Too much strength may bring rate hike Powell back into play. Lot to sift through so I’m staying nimble while the market comes to terms with low rates not solving the slowing growth.

Took some profits on GE today for a 28% gain. May look to make some volatility plays manana.

Yes and no, depending on what you hope to understand. Like wine, spirits, beer, or cigars, the complexity is there, if you want to delve into it. One of the guarantees in life is that a forecast will be wrong. So, it's wise to understand what level of forecast error is not only acceptable to you but also best fits your investment personality, your relative time horizons, and how broad or narrow a point of view you desire.

Forward based valuations are similarly guaranteed to be wrong, especially the further out you try to evaluate. The TTM month P/E is the most commonly used past view. The FTM (forward or next twelve month) P/E is the most commonly used forward view in terms of directional understanding outlook, future sentiment, establishing 12 month price targets, etc. I reiterate these from the article because they are the most common, regardless of degree of accuracy.

I operate with a rock climbing technique mentality, strangely enough. Keep three points of contact with the surface at all times. I tend to use the TTM P/E as my recent actual results point of contact. I use the FTM P/E to understand forward (albeit fluid and directional) growth, multiple expansion/contraction potential, and valuation trajectories as my second point of contact. My third point of contact is that longer term, 10 year average multiple. Those three tend to give me an idea of where things broadly are, where things may broadly go, and how both compare relative to that longer run average.

The market tends to overshoot to the upside and downside so I accept some error there. The market also tends to try to price in whats to come in the next 6-9 months, so that creates more accepted error. Accurately quantifying sentiment is a recipe for madness so I accept fluidity and some error there but counteract that by understanding where we are in the business cycle. For my personality type and relative to just broadly understanding market evaluations, anything beyond my three points of contact becomes analysis paralysis.

I save the deeper analytics for the more short run tactical decisions. Just like valuations, there are near endless indicators, oscillators, averages, etc. to slice and dice price, volume, volatility, momentum, etc. Below are the ones I know or created, excluding the greeks mostly associated with options for "simplistic" purposes. There's a little something for everyone in here. I use around 6 of them on a regular basis for more tactical decisions that then conveniently enough, align to my previously noted and established broader view. Similarly and below the statistics exam list are industry level metrics that come in handy for determining which companies, within an industry, are best of breed beyond just earnings and valuation. As you can tell, I dig getting into these kinds of details for managing my portfolio.

In short, the complexity is there, if you want to delve into it. The best place to start though is what currently makes the most sense to you, what currently fits your investment/market personality type, and/or what currently best fits your needs or curiosities. Sometimes the difficulty comes from attempting to determine which is the right way vs which is the wrong way when the subject matter is already geared more towards the "old way", the "current way", and the "next way."

Earnings growth projections for 2019 are now down to 4.8%. More than cut in half since the end of October. Assuming there are no further reductions to earnings growth projections, the S&P is current just north of 16 times earnings and getting expensive. If earnings growth continues to decelerate to flat, current levels equate to just south of a 17 multiple. Comparatively light volumes today sent the market higher which tends to me a positive move doesn't have holding power. Just another reason to be cautious buying here

Shiller's CAPE is worth paying attention to, but it's also true there are some good reasons why PEs should be a bit higher in recent times -- especially inflation... Inflation has averaged about 2% since 1985 -- between 1960 and 1985, it was nearly 5%.

With low and steady inflation, PE ratios should be a bit higher... with volatile and high inflation, they should be lower.

Obviously when the Shiller PE gets to extremes, it is a warning signal... not sure that is the case right now.

Finally getting an overdue pullback today. Good day take some profits on a few volatility trades and press another. Wouldn't mind seeing the market roll over a bit so I can buy at more approachable levels. Just a slew of bad earnings reports today that are only adding to the slowing global growth concerns and increased trade deal uncertainty.

Economy's not that far from running out of fuel. Slowdown in the rest of the world adds to the problem.

About 12 months from now, we might be running on fumes. Don't push your luck on your long exposure.

My guess is the 2020 political atmosphere will suck the remaining life out of the economy.

This is kind of my feelings as well. I think people will want to make some profits from their growth expenditures of the last 18 months in 2019. Then I think 2020 will be a lack of growth year exasbated the political battles that are destin to get nasty

This is kind of my feelings as well. I think people will want to make some profits from their growth expenditures of the last 18 months in 2019. Then I think 2020 will be a lack of growth year exasbated the political battles that are destin to get nasty

If growth does flatten out like it's starting to show signs it's doing, 2019 may be the last year real estate will be in a seller's market for a while. Interest rates may start trending back down, but lending will get tight like it did in 2010.

If growth does flatten out like it's starting to show signs it's doing, 2019 may be the last year real estate will be in a seller's market for a while. Interest rates may start trending back down, but lending will get tight like it did in 2010.

I currently have a house for sale and am in the market. I think you are seeing this transition now. I think the sellers market has left central Ar

Fortunately, our house sold in 36 hours for its asking price recently in Tulsa. Unfortunately, our new house won’t be finished for about 3 months, so our family of 4 (+2 pets) are sardined in a 3 bedroom apt.

Or you just stay invested, and when it comes back after the recession of 20??, you haven't lost a thing. I'll collect my dividends and let others time the market.

You can massively improve your returns by getting out early and buying in the middle of the recession. Or at the first sign of an upturn. Capital preservation is worth a lot, and most of the returns of a bull market are in its first couple of years.

You can massively improve your returns by getting out early and buying in the middle of the recession. Or at the first sign of an upturn. Capital preservation is worth a lot, and most of the returns of a bull market are in its first couple of years.

What if the stock's I hold don't appreciably decrease during this "recession" You be sure and post screen shots of the day/days you exited the market and re-entered so will know what to do, lol. My way has proven over time to work "every" time, I don't try to time the market.

What if the stock's I hold don't appreciably decrease during this "recession" You be sure and post screen shots of the day/days you exited the market and re-entered so will know what to do, lol. My way has proven over time to work "every" time, I don't try to time the market.

Yeah, people who “time” or buy in and out are often made to look foolish

Yeah, people who “time” or buy in and out are often made to look foolish

I'm not saying it's impossible, but I don't know many, if any, that can tell you when to get in and out with 100% certainty. I'll collect my 5-6% dividends while I wait for the market to go back up, I doubt there will be many other places to park it.

I'm not saying it's impossible, but I don't know many, if any, that can tell you when to get in and out with 100% certainty. I'll collect my 5-6% dividends while I wait for the market to go back up, I doubt there will be many other places to park it.

That’s not bad! Mind sharing some of the better dividend stocks you have doing that well?

I did buy some more AT+T last week to improve my "dollar avg", it's paying 6.93%. It's my biggest loser in the market, but I'm counting on them to figure out the mess they're in, lol. I've got several others in the 3-4% range.

Buying and holding is, without question, the best proven strategy. That being said, having gone through the 2000 and 2009 crashes, it isn't for me at this time. I don't know if I could handle another 56% downturn. I'm becoming less and less trusting of the markets as far as being a level playing field. Maybe I'll go back to it when I retire.

I did buy some more AT+T last week to improve my "dollar avg", it's paying 6.93%. It's my biggest loser in the market, but I'm counting on them to figure out the mess they're in, lol. I've got several others in the 3-4% range.

Buying and holding is, without question, the best proven strategy. That being said, having gone through the 2000 and 2009 crashes, it isn't for me at this time. I don't know if I could handle another 56% downturn. I'm becoming less and less trusting of the markets as far as being a level playing field. Maybe I'll go back to it when I retire.

Your AA should adapt as you age to be able to withstand suck market changes.

Or you just stay invested, and when it comes back after the recession of 20??, you haven't lost a thing. I'll collect my dividends and let others time the market.

It's funny. Most of my money is in the market and I'll just let it sit there forever. But I'll open a new MM account every 30 days for the higher interest rate and sign up bonus. Haha. Seriously. I can make $1k a month just opening and closing MM accounts. I can't believe someone with a zillion bucks hasn't blown this to bits.

Your AA should adapt as you age to be able to withstand suck market changes.

That is conventional wisdom, I know. I'm willing to take on more risk than the average investor at this point in life. I'm pretty sure I know my risk tolerance. I held onto oil from $90 to $26 without selling. I assume full responsibility for my decisions.

That is conventional wisdom, I know. I'm willing to take on more risk than the average investor at this point in life. I'm pretty sure I know my risk tolerance. I held onto oil from $90 to $26 without selling. I assume full responsibility for my decisions.

I’ve rode a couple oil waves myself. Currently holding some now that I would love for oil to hit 80+ this year.

It's funny. Most of my money is in the market and I'll just let it sit there forever. But I'll open a new MM account every 30 days for the higher interest rate and sign up bonus. Haha. Seriously. I can make $1k a month just opening and closing MM accounts. I can't believe someone with a zillion bucks hasn't blown this to bits.

I’ve seen people talk about this before. Mind sharing more info on this?

My goal is to save enough to live off the profits and then pass the nest egg down to my kids in order to start generational wealth in my family. If I want to live comfortably, say at $100k/year, I'll need $2 mil (if I get a 5% return on that amount). If I could get a 10% return, I'd only need $1 mil.